Most companies create budgets to track financial goals and improve efficiencies in both production and operations. Budgets help management establish benchmarks to measure future improvement. Most budgets start with estimated cost and sales figures. Management can set these estimates aggressively for goals for the company. For instance, management might set a cost budget of 10 percent less than last quarter. The goal is to meet this budget, but some goals are not always met. Managers can track the process of these goals with variance analysis.
In a nutshell :
- Analysis of variance, or ANOVA, is a statistical method that separates observed variance data into different components to use for additional tests.
- A one-way ANOVA is used for three or more groups of data, to gain information about the relationship between the dependent and independent variables.
- If no true variance exists between the groups, the ANOVA's F-ratio should equal close to 1.